It's terrific to look forward but let's rely on history to help us. History like last year because what a year of resurrection and revival 2017 was. Look no further than the top 10 winners in the S&P 500 and you will see just what I mean. Let's examine them and see if there's still money to be made in these runaway trains.
The first? NRG Energy (NRG) , a utility company. But not just any utility company, this one was on the brink of failure after being horribly managed like it was some sort of a green play on electricity when it was really a red play as in red ink that it caused a sickening slide. But 2017 was the year where NRG rose, Lazarus-like, and finally made it all the way back to where it was at the start of 2015. That said, I think that everything you can get out of NRG has been had except the possibility of small dividend increases over time that might advance the ball. I would sell the stock if I owned it. A 132% gain is a lot to make off a utility. Don't give it back.
Next is Align Technology (ALGN) and this is one that we have long coveted on Mad Money because it is an answer to both the customer and the patient. Align makes Invisalign, the tooth straightener and it has become a godsend to all struggling dentists as well as their clients, many of whom are part of the selfie-generation and don't want crooked teeth because they look awful on Instagram. The bears are always predicting saturation here and I suspect them to be even more carnivorous about it now that the stock finished up 132%. But it has very little overseas penetration or much competition to speak of. Have a heart to heart with your dentist. There just aren't enough cavities to go around to keep their businesses thriving anymore. But there are plenty of crooked teeth that need to be corrected before you SNAP!
When we talk about drug stocks that are winning in this environment, we have to address Vertex Pharmaceuticals (VRTX) , up 103% because of its success in making the first cystic fibrosis drug that really works. There had been plenty of skepticism about these guys and their trials but the drug came through and should be huge for the company. I think there could be more to come even a possible takeover given how starved big pharma remains for big new drugs like the one Vertex has developed.
There's nothing like when an insider tells you what to do and that's exactly what Steve Wynn --Wynn Resorts (WYNN) -- did with massive purchases of stock in the mid-fifties and sixties a few years back where he told you that his new Macau casino would crush the numbers. It has and it's boosted the stock by 94%. I still can't believe he bought with both hands and people doubted the man after his track record. They did. It's a good remembrance that fairy tales do come true if you happen to listen to Steve Wynn and I am not deterred at all that Macau numbers took a drop recently. I think that it can come right back and you will regret dumping the stock.
Boeing's (BA) next but I covered that in another round-up the other day. Suffice it to say that I like it more than any of the top of the S&P heap. These are all interesting stocks and I do believe that many of them can continue to advance. However, their moves seem much more exaggerated and possibly ephemeral than the winners in the Dow, especially Boeing.
Case in point? Number six: Micron Technology (MU) . Here's a company that reported a blow out quarter not that long ago and it failed to react to the number in a positive fashion even as the beat was an extraordinary one.
That's never a good sign for a tech company because the stock's action says, "You give me this great number and you get nothing, I'm a seller."
Micron makes flash memory and DRAMs and the former peaked a few months ago while the other is unsustainably high. The South Koreans are building new fabs and I fear that these two product lines, long thought to be commodities, despite protestations by management, might spell an unhappy ending even though the stock sells at about four times earnings. That's usually the sign that the earnings won't be there and the stock will actually turn out to be richly valued. I think that's the case and unless flash takes a turn for the better, I think you have a stock that is going to mark time after its 87% gain in 2017. I prefer Nvidia or Broadcom which are more levered to data centers and communications.
You want unsustainable? How about a homebuilder with an 86% gain for its stock last year? That's what D.R. Horton (DHI) did and it is incredible because these are precisely the stocks that must be sold as soon as the Fed tightens. What's going on here? I think it's a couple of things. First, mortgage rates haven't really gone up despite the Fed's moves on the short-tend. Second, there is a housing shortage owing to the fact that it is much harder, environmentally, to build, and hard to get credit. Third, the domestic companies are on fire because of tax reform that turned out not to be baked in.
Finally, as the largest homebuilder by volume, and a low price point for their houses, they are the ideal company for the millennials who, at last, are moving out of expensive rental apartments or their parents' places.
Paypal Holdings (PYPL) is one of my absolute favorite companies and it had an amazing year with a stock that jumped 86%. I credit Dan Schulman, the CEO, with much of this gain because he took Paypal from being a decent division of eBay (EBAY) into something that's become THE ultimate financial juggernaut, the millennial way to pay bills. It is getting to be accepted everywhere and it seems like, after years of worry, it now has no natural enemies.
I can't tell you how important the tale of Paypal is. Many times this stock would roar only to have Gene Munster, late of Piper Jaffrey, slam it down with all sorts of phantom concerns. It is no coincidence that this remarkable run began when Munster left Piper to go out on his own.
I think that this stock still has more to go, even after its incredibly strong start to 2018, because it hasn't even begun to monetize Venmo, the millennial way to trade cash. If the stock ever goes down -- and that's saying something -- I could see it be an acquisition candidate for any of the big e-commerce companies. Yes, it is that good a situation. Schulman is an understated genius and a really great guy, testament that Pop was wrong when he cribbed that nice guys finish last.
Nvidia's ended the year tired, both the dog and the stock. But then Intel had a glitch and investors ran to Nvidia betting it could take data center share. If there is any share to be taken it will probably be from AMD, but it didn't matter in this tape. It's blast off time again for this amazing stock.
Nvidia (NVDA) makes the best chips for gaming, for the cloud, for artificial intelligence and for machine learning. None of those markets is faltering. In fact, they are growing stonger.
But it also makes the chips to mine bitcoin and as long as it is linked to that cryptocurrency it will have weak-handed shareholders. Let's hope they were all shaken out by the recent morose behavior of this fabulous stock and these new gains can be built upon.
Finally there's PulteGroup (PHM) , another low-to mid-range homebuilder like Horton that is surfing the wave of housing shortages across the country. I think Pulte, like Horton, has had too big a move versus what can happen with a tightening cycle. I also think that both these stocks have been the subject of short squeezes because of the way the "textbook" says you have to short them at this stage of the game. I think not, but I don't think you will do as well as last year because eventually the Fed will do one tightening too many and you will get hurt owning this stock.
There you have it, some very big and I think very unsustainable wins for most of these companies with the possible exception of Align and Wynn on the earnings upside, Nvidia on a strong product line and Vertex on a potential takeover. There are other, better, fish to fry at this stage of the economic cycle and with the exception of perennial winner, Nvidia, it sure is hard to reprise these kinds of gains.